CBDT introduces a two-month window for payments made on or after August 1
Income Tax Act mandates Aadhaar-PAN linking within prescribed timelines, failing which the PAN becomes inoperative | Photo Credit: iStockphoto
In a relief to Income Tax deductors and collectors, Central Board of Direct Taxes (CBDT) has widened the window for avoiding adverse consequences arising from inoperative PANs (Permanent Account Number) due to non-linkage with Aadhaar.
According to a circular, there will be no liability on the deductor/collector under section 206AA/206CC (prescribes higher rate of Tax Deducted at Source or TDS and Tax Collected at Source or TCS) of Income Tax Act under two conditions. First, where the amount is paid or credited from April 1, 2024 to July 31, 2025 and the PAN is made operative (as a result of linkage with Aadhaar) on or before September 30, 2025. Second, where the amount is paid or credited on or after August 1, 2025 and the PAN is made operative (as a result of linkage with Aadhaar) within two months from the end of the month in which the amount is paid or credited.
Income Tax Act mandates Aadhaar-PAN linking within prescribed timelines, failing which the PAN becomes inoperative and triggers consequences such as higher TDS / TCS, denial of refunds, and no interest on refunds. While the PAN became inoperative from April 1, 2022 for non-linkage, adverse consequences applied only from July 1, 2023. Later, to address hardships faced by deductors / collectors receiving notices for short deduction or collection due to inoperative PANs, relief from liability to deduct / collect tax at higher rates was provided for transactions up to March 31, 2024 where PANs were made operative by May 31, 2024.
However, CBDT said that several grievances have been received from the taxpayers that they are in receipt of notices intimating that they have committed default of ‘short deduction/collection’ of TDS/TCS while carrying out the transactions where the PANs of the deductees/collectees were inoperative. In such cases, as the deduction/collection has not been made at a higher rate, demands have been raised by the Department against the deductors/collectors while processing of TDS/TCS statements. Keeping this in mind, CBDT issued a new circular.
Final compliance window
Shaily Gupta, Partner at Khaitan & Co said the introduction of a two-month window for payments made on or after August 1, signals the department’s intent that this is likely the final compliance window, and no further relaxations may follow. Deductors should therefore treat this as the last opportunity to avoid higher TDS/TCS rates and implement robust internal systems to track PAN status, especially for high-value transactions. Importantly, “the relief is not automatic – those facing demands in ongoing or past proceedings must proactively invoke the Circular while responding to notices or filing appeals and rectification applications,” she said.
According to Sneha Padhiar, Partner at Bhuta Shah & CO LLP, the previous circular laid emphasis on enforcing compliance of PAN-Aadhar linking without contemplating significant and genuine hardship to taxpayers at large. Also, there was no grace period specified in earlier circulars issued in 2023 and 2024. Now with providing a grace window even beyond July 2025, the board has adopted a practical and equitable approach. “It provides clarity, eases compliance, and avoids undue penalties in cases where the PAN was later linked with Aadhar. This circular is a testimony of how enforcement and empathy can coexist,” she said.
Published on July 22, 2025
aniltikotekar4sme.com 